Week 19 in Brief
U.S. stocks rose Friday to finish a volatile week that was marked by growing inflation fears and a weaker-than-expected April retail sale. A decline in Treasury yields and a rally in commodities, led by oil helped allay inflation risks, but the gains were not enough to reverse weekly losses for the major stock benchmarks.
How did the major indices perform?
- On Friday, the Dow Jones Industrial Average jumped 360.68 points Friday, or 1.1%, to 34,382.13. The Dow was down 1.1% for the week.
- The S&P 500 gained 61.35 points, or 1.5%, to 4,173.85. The index posted a weekly loss of 1.4%.
- The Nasdaq Composite surged about 304.99 points, or 2.3%, to 13,429.98. The tech-heavy Nasdaq remained down 2.3% for the week.
- On Thursday, the Dow finished with a gain of 433.79 points, or 1.3%, as stocks took back a chunk of the previous session’s rout and ended a three-day losing streak. The Nasdaq Composite rose 0.7%, while the S&P 500 advanced 1.2%.
What drove the market?
- Market Volatility: Investors may be viewing the past few sessions as a buying opportunity, despite a batch of economic reports that have illustrated the challenge of recovering from the COVID-19 pandemic.
- Inflation fears: Earlier this week inflation worries moved front and center for equities and other markets, reinforced by a hotter-than-expected reading on the April consumer-price index on Wednesday. Technology and other interest-rate sensitive growth stocks have suffered the most as Treasury yields rose in response. Analysts believe that higher inflation is likely to remain in the spotlight as the post-pandemic recovery accelerates.
- Economic Data: Early Friday, data showed sales at U.S. retailers were unchanged in April after a blockbuster 9.8% gain in the prior month when the government sent out $1,400 stimulus checks to most Americans. Economists polled by Dow Jones and The Wall Street Journal had forecast an 0.8% increase. Meanwhile, U.S. consumer sentiment slumped unexpectedly this month, with the University of Michigan’s index of consumer sentiment fell to 82.8 in May for the lowest reading since February. The index had hit a pandemic high in April. But U.S. manufacturing output rose 0.7% in April. Economists polled by the Wall Street Journal had forecast industrial output rising 0.8% in April. Production rose a revised 2.4% in March, up from the initial estimate of a 1.4% gain.
- Strong Earnings Season: The earnings season has been stronger-than-expected, and some believe this bull market has more room to run and investors should take advantage of any dips, even as bond yields increase in anticipation of central bank tightening.
Which stocks were in focus Friday?
- Tech stocks were the biggest outperformers Friday. Tesla gained more than 3%. Facebook jumped 3.5%, while Alphabet and Microsoft rose more than 2%. Apple, Amazon, and Netflix also all climbed over 1%.
- Walt Disney shares fell 2.6% despite the company beating earnings expectations when it reported results Thursday afternoon. The pandemic-fueled growth of its streaming services slowed, as the company posted weaker-than-expected revenue and streaming subscribers.
- A day after announcing that Tesla Inc. would no longer accept bitcoin as payment for its cars, Chief Executive Elon Musk suggested Thursday that parody crypto dogecoin could be turned into a suitable replacement. Tesla shares rose 3.2%, while dogecoin jumped about 44%.
- Shares of Airbnb rose 4% after the company on Thursday reported continued resilience in its business, posting higher first-quarter revenue and increased gross bookings than expected, but with a larger-than-expected $1.2 billion loss.
- Shares of Online retailer Farfetch Ltd rose 12.5% after the company said Thursday that it had swung to a first-quarter profit on higher revenue as demand for luxury items online continued to grow.
- Shares of DoorDash Inc. surged 22.2% after the food-delivery app company on Thursday reported gross orders of $9.9 billion for the first quarter, well above analysts’ expectations of $8.97 billion. In addition, its revenue nearly tripled, rising to $1.08 billion from $362 million in the year-ago quarter.
- Coinbase Global Inc.’s shares fell 2.5% after the crypto exchange delivered quarterly results late Thursday and said it would be adding dogecoin to its platform in the next six to eight weeks.
- Tyson Foods Inc. announced Friday it had reached a deal to sell its pet treats business for $1.2 billion to General Mills Inc. Shares of both Tyson and General Mills fell less than 1%.
How did the European markets perform?
- European stocks jumped on Friday, led by gains in energy and retail sectors after the Federal Reserve said there would be no imminent move to tighten monetary policy, easing fears of rising U.S. inflation that pushed the STOXX 600 index into negative territory for the week.
- The pan-European STOXX 600 index rose 1.1%, with oil & gas and retail stocks leading the gains. But the benchmark fell 0.5% for the week as a rally in commodity prices and signs of quickening U.S. inflation raised fears about an earlier-than-expected interest rate hike by the U.S. Federal Reserve.
- While price rises are less of a problem in the eurozone, investors have taken cues from Wall Street for most of the week. Analysts, however, say Europe remains an attractive pick for global investors.
- Among individual stocks, Italy’s Banco BPM rose 3% after Deutsche Bank upgraded the stock to “buy”, saying the lender’s “speculative appeal” could increase in the next few months.
- French food group Danone slipped 0.3% after Goldman Sachs downgraded the stock to “sell”, saying weaker demographic trends, particularly in China, will weigh on its specialized nutrition business.
How did Asian markets perform?
- Asian markets finished mixed as of the most recent closing prices. The Shanghai Composite gained 1.14%, while the Nikkei 225 led the Hang Seng lower. They fell 2.07% and 0.27% respectively.
- Alibaba (BABA) posted its first operating loss as a public company in its fiscal fourth quarter ended March 31, but revenue beat expectations. The losses are attributed to its failed Ant IPO and the massive antitrust fine it received from the Chinese government last month.
Commodities and other assets
- Oil futures rallied in afternoon trade Friday, sending the U.S. crude benchmark above $65 per barrel while the global benchmark Brent crude contract was advancing $1.70 to $68.75 per barrel. The gains came on the back of an eroding U.S. dollar as traders positioned for higher inflation and weaker-than-expected macroeconomic data in the United States.
- Energy stocks continue to post strong gains Friday afternoon, with the NYSE Energy Sector Index climbing 3.1% while the SPDR Energy Select Sector ETF was up 2.9%. The Philadelphia Oil-Service Sector index was posting a 3.7% gain and the Dow Jones US Utilities Index also was 0.4% higher.
- The yield on 10-year Treasuries declined three basis points to 1.63%. Germany’s 10-year yield declined one basis point, more than any closing loss since May 4. Britain’s 10-year yield declined four basis points, more than any closing loss since May 4.
- Iron ore continued its fall from a record amid efforts by China to clamp down on surging prices, with the metal set for the biggest two-day plunge since 2019.
- June gold rose $14.10, or 0.8%, to settle at $1,838.10 an ounce on Comex.
- The ICE U.S. Dollar Index, a measure of the U.S. currency against a basket of six major rivals, was down 0.5%.
- The Bloomberg Dollar Spot Index fell 0.3%, more than any closing loss since May 7.
- The euro rose 0.5% to $1.2143.
- The British pound rose 0.3% to $1.4098.
- The Japanese yen rose 0.1% to 109.35 per dollar.
- Bitcoin traded above $50,000, reversing some of its slump on Tesla Inc.’s decision to suspend purchases using the digital currency.
- Investors will keep an eye on the market rally, analyze earnings from Big retailers - Walmart & Home Depot, parse a batch of housing-related data and minutes from the Fed meeting.
- Watch out for our Monday Weekly Market Outlook that provides insights on what’s coming up that week.